Irish Property Market chat II - *read mod note post #1 before posting*

I think there is a lot in what he says, some data does indicate we are nowhere near as crisis levels of supply as the headlines would have you believe.

It's important to distinguish between whether somebody means supply as in houses actually on the market versus supply as in volume of existing housing stock.

Sure the data shows that supply of houses on the market is at record lows.

But the data of supply of housing stock suggests the picture is nowhere as bleak as most claim.

And I think Skehan's point if we ramp up a housing program that builds 60/70/80k houses a year for next decade, we are likely to have turn quickly into a position of oversupply.

And that then causes the same problems of 07/08 all over again.

Skehan is not a particularly likeable fellow, but he's no idiot.

2022 census for one.

According to the CSO the total housing stock is 2,124,590 and the average household size is 2.75 in Ireland.

Total housing stock of 2,124,590 x Average household size 2.75 = 5,842,622 total housing person capacity

And the population is 5,123,536.

So on the face of it based on average household size we have "spare" capacity for 719,086 people. Or to put it another way - 719,086 / avg household size 2.75 = 261,485 spare housing units.

Obviously it is not that simple because in order to facilitate a healthy turnover of stock in a functioning market you need some spare capacity at all times - this is in the region of 6% of housing stock equating to 127,475 units.

261,485 spare housing stock - 127,475 turnover stock = 134,010 oversupply

That potential oversupply we have will have dropped a bit because of significant net immigration since April 2022, but the raw numbers are still nowhere near as alarming as the headlines.

Or to put it another way, if you had never read a newspaper article on Irish property, or tried to rent/buy a house recently, and were coming to the situation with no preconceived idea of the situation and you looked at the number of houses in Ireland compared to the number of people you would conclude there is no shortage of houses.

If you have a few years of building 60/70/80k into to those housing stock numbers you will run into oversupply sooner or later. The longer it takes, the bigger the impact.

Just listened to both interviews, and feel a bit bad about my comment on Skehan not being likeable. I thought he came across well, nervous as he knew he'd get it in the neck.

Re Ahernes point about people buying investment properties, we didn't really have a investment landlord class back then.

I daresay if we still didn't have the institutional landlords, and all the units that have been delivered in last 7 or so years that have not made it to market because of build to rent, REITs bulk buying, PArt V delivery etc, had been on the open market it would feel like every Tom, Dick and Harry had been buying second properties as an investment.

I agree with Aherne's thinking re the government should putting all the public money eggs in one basket to supplying the social housing demand and leave the private market to look after itself by and large.

I just did same housing stock / average household size / population calculations using the numbers from the 2006 census.

And the result was an oversupply of 159,187, only 25,000 units more than 134,010 figure from the 2022 census.

And in the year or so following the 2006 census another 100k new units were built, which led to a huge crash due to oversupply. Skehan is just warning to be careful we don't repeat the same mistake again.

No, it doesn't ignore vacants and airbnbs - these would be accounted for in the 6% I allowed for spare capacity:

Obviously it is not that simple because in order to facilitate a healthy turnover of stock in a functioning market you need some spare capacity at all times - this is in the region of 6% of housing stock equating to 127,475 units.

Re holiday homes - I think the housing stock figure does not include dedicated holiday homes, ie those which are restricted by planning for holiday home use only. I will check that. I'm not sure how many that is of the total holiday home figure.

You're correct it doesn't account for Ukrainians hence why I said figure would have reduced since April 2022.

The average household size decline is an in interesting one - a lot of the upper estimates of new builds required is predicated on the assumption that we will converge with the European average household size which is much closer to 2.

Does that theory really stack up?

Our household size is larger which because our housing stock is made up of larger properties. We have a lot more houses than most of Europe who have a lot more apartments.

Are there really a ton of people in Ireland living in 3 bed houses who are yearning to live in small apartments? It seems unlikely.

So if the case is we need 50k plus apartments per annum in order to meet demand for smaller household sizes then I think the maths holds up.

But the developers will tell you they won't build them because everybody wants to buy 3/4 bed houses. And we certainly don't need 65k 3/4 bed semis a year!

The vast majority will be second home/vacant investment/probate etc but as mentioned that sort of stock usage accounted for in the 6% of spare capacity you'd expect to find in a functioning housing market.

The point I am making that is if you look at the best available data we have on existing housing capacity in Ireland, you would not expect to see a shortage of supply on the market. In that context I think Skehan's warnings about oversupply are not as crazy as they sound.

I think we're so fixated on the solution of ramping up new build supply, that we're totally ignoring the other biggest cause and thus potential solution which is turnover of existing stock - i,e people buying and selling existing 2nd hand stock.

The turnover of existing stock facilitates a big game of musical chairs within the housing market. A healthy turnover rate ensures the most efficient allocation of both the stock and the capital in the market.

In a healthy market people buy and sell when they want to, need to, or when they have to. Everybody's wants/needs/finances are different but in the whole they are all moving up/down/sideways and there is something for everyone. This is enabled largely by a proportion of existing property owners selling and buying.

For 15 years or so existing property owners have not been selling in anything like the numbers you'd expect. I think the root cause of this goes back to negative equity/bank issues but thats had a knock on effect that has been getting worse every year, and thus the housing market turnover rate has been extremely low by historical standards.

These sort of things tend to revert to the mean over time, but in order to do so it means at some stage the turnover rate will exceed the historic average for a period of time. It's just a release of pent up supply, built over 15 years. An increase in turnover will have the same knock on effects in reverse as the decrease has had. It could feel like we're in an oversupplied market very quickly.

In all the talk about the housing market you never hear anything about the low turnover of existing stock, it's quite odd.

Sure a high number of holiday homes and higher vacancies in Donegal, Mayo, Roscommon etc compared to Dublin would be entirely expected.

The CSO has released vacancy data from 2022 - https://www.cso.ie/en/releasesandpublications/ep/p-cpr/censusofpopulation2022-preliminaryresults/housing/

Dublin as a whole running at 5.5% of stock. The interesting thing is how skewed the rates are by individual areas. If you look at the LEA map you'll see the highest values areas of Dublin have the highest vacancy rates - many in excess of 10%. The cheapest areas - Ballymun etc - have rates under 3%.

So at a national level it's location, location, location - high vacancy rates are expected in lowest value/demand areas. They're vacant because nobody wants to live there.

Whereas in Dublin, where the housing crisis is most acutely felt, it's the total opposite - the highest vacancies are in the highest value/demand areas.

Another interesting about Dublin is that pre-Covid, about 2016-19, it was the only county in which the number of holiday homes increased year on year. Again that might be unexpected.

You can do the same housing stock/avg house size/population calculations for Dublin:

So not quite as damning. Oversupply is only about 1%, a rounding error in such matters.

But bear in mind it is oversupply nonetheless. The 6% base rate spare capacity is what you would expect in an efficiently functioning market with a healthy turnover leading to a healthy supply of sales and rental stock.